Pandora Plunges 18%: ‘Very Cautious’ About Fiscal Cliff

By Tiernan Ray

Shares of Internet radio purveyors Pandora Media (P) are down $2, or 21%, at $7.43 after the company this afternoon reportedfiscal Q3 revenue and profit per share that topped analysts’ estimates but forecast a surprise loss per share this quarter and revenue well below expectations.

Revenue in the three months ended in October rose 60%, year over year, to $120 million, yielding EPS of 5 cents a share in adjusted profit.

Analysts had been modeling $117 million and a penny profit.

Pandora said told “listener hours” in the quarter rose 67%, year over year, to 3.56 billion.

For the current quarter, the company sees revenue in a range of $120 million to $123 million, and a net loss of 6 cents to 9 cents a share, on a non-GAAP basis. That is below the average Street estimates for $130.3 million and a 1-cent profit.

Update: The shares have regained a little bit of ground and are now down $1.66, or 18%, at $7.79. The stock had risen almost 6% during the regular session.

Update 2: During the conference call this evening, CFO Steve Cakebread remarked that Pandora’s Q4 results would reflect a “re-acceleration of hiring driven partially by the addition of incremental recruiting opportunities.”

When it came time for the Q&A session, the first question dug into what CEO Kennedy said was advertiser caution about the “fiscal cliff” in Washington’s budget negotiations.

Kennedy said advertisers were proving very concerned about the cliff and the company was having a hard time predicting month-of-January results:

What we’re really seeing from advertisers, I think has to be first understood in the context of again our Fiscal Year quarter is November December and January and so what we really experienced over the past couple months is increase in caution from advertisers about macroeconomic concerns, the fiscal cliff particularly in January, and that really is the difference between what we know now and what we knew three months ago when we last gave guidance. The visibility of January is never particularly good and the cautiousness surrounding January at this point further deteriorates the visibility and drives us to a more cautious position. As you suggest, November and December are seasonally strong months and we certainly expect a good November and December but are very cautious about January at this point.

Pandora shares are now down $1.80, or 19%, at $7.65.

Kennedy kicked off his formal presentation boasting of the company’s mobile revenue growth, noting that the pace of 112% was higher than the pace of mobile hourly listening growth, which was just 85%. Mobile monetization reached a record high, he observed. He said Pandora’s share of all U.S. radio usage was 6.55%, up from 4.3% a year earlier.

Kennedy also spoke at length about what he believes is the unfair rate of royalties demanded of Internet broadcasters, remarking,

The amount just Pandora will pay this year will be greater than that paid by any other radio Company in the US or around the world. In fact there’s no country internationally where the entire radio industry, all of the AM, FM, satellite cable and internet radio companies pays a total combined amount even close to what he as a single Company will pay this year.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.